Rackspace Hosting Inc. (NYSE: RAX) was supposed to have its earnings report out after the close of trading on Monday. The big news is not that Rackspace managed to beat revenue expectations - Rackspace also announced that Lanham Napier has retired from the company as Chief Executive Officer and as a member of the Board of Directors.
Rackspace's co-founder and Chairman Graham Weston has been appointed as CEO while the company searches for a long-term successor. Weston provided capital for the formation of Rackspace in 1998 and he served as CEO from July 1999 to August 2006. Rackspace earnings came in at $0.14 in earnings per share on sequential revenue growth of 5% and 16% annual growth to $408.1 million. Estimates from Thomson Reuters were $0.14 EPS and $404.5 million in revenue.
Here is where the revenue beat comes under question – fourth quarter net revenue was positively impacted by currency exchange rates when compared to the previous quarter by $4.2 million and positively impacted when compared to the fourth quarter of 2012 by $0.8 million. So suddenly the beat is not by as much as it looks on the surface, even if it is still a beat.
Rackspace also said that its total server count rose to 103,886, up from 101,967 servers at the end of the previous quarter. The company’s Rackers – employees – grew to 5,651 as of December 31, 2013 versus 5,450 in the previous quarter.
The CEO retirement announcement said that Mr. Napier “plans to invest in and advise other entrepreneurial companies following a decision to step away from public company executive leadership.” The release also said that he will remain a consultant to Rackspace for the next several months to ensure a smooth transition.
Before you just consider this a straight retirement, investors have to consider that Mr. Napier is listed as being only 43 years of age in Yahoo! Finance. Wall Street does not really seem convinced that this company’s woes are over. Shares closed up 2.1% at $40.36 on Monday, but the stock was indicated down 12.5% at $35.40 in the after-hours session. Keep in mind that this stock has recovered from a low of close to $33, but this stock is still down almost half from its peak in 2013 of $75.37.
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